Alternative-energy investors say to eye the long term

BARCELONA (MarketWatch) -- A profit warning from German solar panel group Q-Cells on Tuesday clouded the near-term view, but the message from global money managers here was, when it comes to alternative energy, investors have to keep an eye on the longer horizon.

The world´s largest maker of solar cells reported a better than expected profit of 19.8 million euros ($27 million) for the first quarter, but coupled that with a slash in its 2009 sales outlook for the third time since December. A slide in demand is hurting the company, along with new regulations in Spain, which contributed to a fall in subsidies and sales collapse. And Q-Cells (QCE) also complained about a lack of project funding.

"Longer-term manufacturing costs for solar are still projected to fall significantly," said Steven Falci, vice president for sustainable investment at KBC Asset Management in Dublin. That move, he said, will hopefully open up solar for the wider world, making it more accessible and more popular, which will support prices over the longer term.

In the shorter term, of course, he said there are questions to access to finance for companies in the solar realm like Q-Cells. However, he said investors have to look further ahead.

"This isn't a six-month or a 12-month call. It's a sound investor idea for the next 20 to 30 years," he said in an interview with MarketWatch.

KBC has a specific focus on environmental in its investment strategies and at the second annual Institutional Investors´ Congress in Barcelona, there was a room full of money managers and asset allocators keen to hear what Falci and other experts have to say about investing in the sector.

Stocks and sectors and technologies are important, said Falci, speaking at the conference. Get that right and you have good diversification for a portfolio, he said. He said when it comes to alternative energy, there are seven key sectors that investors should look at renewable energy -- such as wind and solar; cleaner energy, energy efficiency, waste and water supply, waste management recycling, carbon trading and agro business.

"Increasing demand for water and food are outstripping supply side and growth in population, and on climate change we have achieved consensus, we need to address these issues," said Falci. He cited one figure of $1 trillion annually that will need to be invested in new infrastructure in the developing world and replace existing infrastructure in developed world to have adequate drinking water over next 20 years.

Financing risk

One risk to the sector is financing, an issue that Q-Cells is clearly running up against.

Neil McIndoe, head of environmental finance at Trucost, which provides environmental data on companies and sectors to companies and fund managers, said investors "have to be clever about what governments are up to. They can suddenly change and the whole investment case will disappear.

"You need a skillful man on your side if you're going to make these kinds of investments," McIndoe said, noting the case of solar panels in Spain.

Solar stocks have been hit in past months over a looming cap on current subsidies to the solar sector in Spain, on which the sector depends. In July, the government asked the energy regulator to cut current subsidies to the sector over concerns about unsustainable growth in the sector.

Falci said they currently have the highest rating on wind and solar sectors, in that order, owing to the fact they each have the strongest regulatory support, currently. "But more importantly, we've seen technology driving costs down in each of these areas where wind is already economically efficient in so many areas," he said.

He said they look at companies that are the best positioned for long-term leadership.

"In the current environment that we've been in, where we know there has been issues with access to finance. We've been very careful in measuring risk relative to a company's ability to get financing. We're also looking across strategies...these are very volatile strategies that need to be considered in an overall portfolio," he said.

He admits that returns for alternative energy companies can be volatile, with renewable energy as a sector off 60% last year, but said there are gains to be had over the long term.

"Even with the rally now and bounce backs we believe companies that are going to be true long-term leaders, the valuations don't reflect the opportunities. It does present attractive entry point for longer-term investors," he said.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.